Jim Rogers, chairman of Rogers Holdings, points at the Korean Peninsula on a globe following a recent interview at his residence in Singapore. He said that once unified, he may invest most of his wealth in Korea. / Korea Times photo by Kim Jae-kyoung

Legendary investor sees debt bubble burst sooner than later

By Kim Jae-kyoung

SINGAPORE ― U.S. stock markets have remained buoyant since President Donald Trump took office on Jan. 20.

Following his first speech to Congress on Wednesday, the Dow soared by 300 points to top the 21,000 mark for the first time ever. The milestone came less than a month after it broke the 20,000 level for the first time.

People are scratching their heads over the market upturn, questioning whether it is sustainable. Many expected uncertainties triggered by Trump's unpredictability would weigh on financial markets.

Jim Rogers, chairman of Rogers Holdings, warns this is not the time to invest anywhere because the ongoing market strength is driven by a bubble created by speculators.

He expects markets will remain buoyant for a while on expectations of Trump's "America-first" policy but it will be short-lived and end up causing bigger problems later this year or next year.

In particular, he believes Trump will soon start trade wars with major trading partners, sending the global economy and financial markets into chaos.

"What worries me is he promised many times that he is going to have trade wars with China, Mexico, Korea and Japan. I believed him," Rogers said in a recent interview.

Trump hired two key people supporting trade wars. Commerce Secretary Wilbur Ross is very much in favor of trade wars. Peter Navarro, head of Trump's National Trade Council, stakes his whole reputation on saying China is evil.

The former partner of George Soros said if Trump starts a trade war it's going to be much worse than many expect.

"If Trump starts a trade war we should sell everything we own," he said. "Everybody is going to be badly affected."

Rogers is one of the world's three most famous investors together with George Soros and Warren Buffet.

Trump's big tax relief and infrastructure investments will give a short-term boost to the U.S. economy but will eventually make it more debt-ridden and vulnerable, according to the Singapore-based investor.

"Trump said he is going to cut taxes and build infrastructure. Where is the money coming from? Mortgages are soon going to fall from the sky," he said.

"U.S. markets are going to stay higher for a while. But the higher they go the worse it is going to be. When the bubble ends, it is going to be worse. Trump is not doing anything about it at all."

The following is an excerpt from the interview.

Q: Trump wasted no time carrying out his campaign pledges focusing on his "America-first" policy. What do you think of Trump's decision to withdraw from the Trans-Pacific Partnership (TPP)?

A: Free trade throughout history has proven to be good for everybody involved. Some people suffer of course but overall, nations are better off with open markets. He pulled out of TPP. I don't think Trump knew what TPP is. He talked a lot but he didn't seem to really know what was going on.

Q: What do you think of FRB's interest rate policy and the chairwoman Janet Yellen?

A: Janet Yellen is a disaster. In the meantime, central banks all over the world will continue to have easy money. Everybody has easy money. That's one reason markets are going up so much. I would let the markets determine interest rates. Interest rates should be higher because they are artificial at this level. When something is artificial it usually leads to problems in the end.

Interest rates around the world have never been so low and in some countries, we have negative interest rates and it never happened before in world history. It is destroying many people. All the people in Korea who saved a lot of money for the future are getting wiped out because interest rates are nothing. Now in Japan, Europe and America, a lot of people are getting destroyed.

Q: Trump signed an order to start easing regulations on the financial industry. The order starts a review of the financial system regulations including the Dodd-Frank reform act, the banking industry rules passed after the 2008 financial crisis to protect consumers.

A: People who passed the law said it was designed to protect consumers but I don't know if that is the case. Trump may not believe it. If it is changed, it would be good for banks and investment banks because that will make them more profitable and give them other things they can do.

They also said the change would make financial systems more vulnerable to shocks. I'm not sure they will. I think Trump's move is a step in the right direction because opening a market is always good. Most regulators I meet don't know what they are doing.

Q: Uncertainty and volatility are likely to linger for a while. Where should we invest?

A: I own a lot of U.S. dollars because I expect turmoil. People will put their money into the U.S. dollar because they think it is a safe haven. If the dollar goes higher, it gets overpriced and may turn into a bubble. It's not a safe haven but people think it is. That's why I own gold. I'm not buying gold now because I expect gold to go down.

Q: Do you think Trump will make a good president?

A: I don't think Trump will make a great president because of so many problems facing the world. Turmoil is going to be so great and he will get the blame.

Q: What do you think of Korea's political scandal surrounding President Park Geun-hye and Park's impeachment?

A: If her friend was actually making people give money to her foundations that should be a huge problem. If that's what was happening Park should be impeached and removed.

I see why Korean politics should keep putting people in jail. Maybe that's the way the system works. People lose offices in America but not many people go to jail. But in Korea a lot of people go to jail (after elections). That's unique. I cannot think of many other countries where serious and high-level people go to jail.

Q: Lee Jae-yong, de facto leader of Samsung, was arrested over his alleged role in the political scandal. Do you think Lee's absence will cause a leadership crisis and shake Samsung?

A: No. Samsung is a powerhouse. It's not one man and it's not even one family anymore. If he did things wrong he should go to jail. It may cause some disturbances and disruptions but Samsung is too big and too powerful.

Q: What is the biggest downside risk to Korea's economy?

A: The biggest problem for the Korean economy is the U.S. If the U.S. has problems, which I expect it will, then you will have problems. Your second-largest trading partner is the U.S.

It is going to be worse this time because China got in debt by itself. In 2008, China did not have much debt. For many historic reasons, now China has debt. You are going to see bankruptcies in China.

Q: Do you think Korea and Korean companies are attractive destinations for investment?

A: I am not investing in Korea and any other places right now because I'm worried about trade wars. I believed Trump. If there is no trade war then I made a mistake and I will have to reassess everything.

Q: How can Korea reinvigorate its economy?

A: You have to build a society set by the rule of law and market principles. Korea is and has been one of the most protected countries. Too big to fail is part of protectionism in Korea. It will not be fun if you start having people fail. However, it is the only way to come out on the other side and be a stronger, competitive economy.

I expect unification with the North soon. When that happens, that will solve all the problems you have in the South and make Korea one of the most attractive countries. Then you will have cheap labor and natural resources. When you have turmoil here, that can offset some turmoil and add some strength to Korea. With unification with the North you will have their cheap labor and natural resources, which makes you competitive again and the most exciting country in the world.

Q: Do you think North Korea will collapse from within?

A: If there is nobody to succeed Kim Jong-un they may collapse from within. Collapse from within is a complicated thing. The Soviet Union collapsed from within. East Germany collapsed from within. It was because people got exposed to the outside world. Now in North Korea they are exposed to the outside world.

In 2017, North Korea is different. They are exposed and know South Korea is not poor or full of starving slaves. They know that in China things are getting much, much better. Ten years ago they did not know. They thought South Koreans were poor and starving but now they know better. Revolutions come when people's expectations rise. When old men were alive they didn't know. They were suppressed and beaten down. But nowadays they have visitors from Russia and China coming. That's why I expect unification. North Koreans now know that China and South Korea are better off so they want the same thing.